Budget 2024: Govt may remain fiscally prudent; populist measures may upset the Indian stock market, says Ajit Mishra

Budget 2024: Ajit Mishra, SVP of research at Religare Broking, expects the Union Budget 2024 to largely continue the Interim Budget proposals. He expects the government to remain fiscally prudent and growth-oriented. In an interview with Mint, Mishra shared his views on what can upset the market and what strategies investors should follow ahead of the Budget.

Edited excerpts:

Will this Budget offer a strong impetus to market sentiment? What is the market expecting?

The prevailing optimism in the markets indicates that investors are expecting a balanced Union Budget.

Market participants expect the Budget to largely adhere to the direction established in the Interim Budget.

This continuity suggests a sustained emphasis on crucial areas such as infrastructure development, social welfare programs, and measures to stimulate economic growth while simultaneously keeping the fiscal deficit in check.

By maintaining fiscal discipline, the government can foster sustained investor confidence and ensure long-term economic stability.

Budget and Q1FY25 earnings are the key triggers for the market. Do you see any risk of disappointment?

The Indian stock market anticipates the government will uphold its fiscal prudence policy.

Any significant deviation, such as populist measures or changes in equity-related taxation, could be detrimental and potentially cause setbacks.

On the earnings front, investors should exercise caution, as most sectors are trading at valuations higher than their historical averages.

Any major negative surprise could lead to significant volatility and a possible decline in stock prices.

Should we see a correction in the market, how deep could it be?

Markets have gained over 10 per cent in the first half of the calendar year and are currently hovering at record highs.

As the budget approaches, some profit-taking is expected.

However, the overall trend will likely remain positive, indicating continued investor confidence despite potential short-term fluctuations.

On the benchmark indices front, we are looking at 23,900 and 78,600 as immediate support levels in the event of profit-taking, with major support at 23,300 and 76,800.

What should be our strategy ahead of the Budget?

Markets often exhibit volatility around the Budget, so we believe it is prudent to maintain a hedged approach and monitor position sizes.

Traders might consider booking some profits in sectors and themes such as railways, defence, and select PSUs, which have performed exceptionally well in recent months.

Conversely, long-term investors are advised not to alter their portfolios based on Budget expectations. Instead, they should focus on earnings and make necessary adjustments as needed.

While almost all sectors have gained recently, do you see some steam left in some sectors? What are you betting on?

Investors can still find opportunities for fresh investments in the technology sector, particularly in companies involved in artificial intelligence and cloud computing, due to their strong growth prospects.

The FMCG sector is also expected to benefit from increasing consumer spending and economic recovery. Select banks and NBFCs also present robust long-term investment prospects.

Are there still some opportunities in mid and small-cap segments?

Investors should adopt a balanced approach and diversify their investments accordingly.

Large-cap stocks may offer stability and are expected to perform well due to strong economic policies. In contrast, small and mid-cap stocks have higher growth potential and benefit from targeted reforms and government support.

Focus on fundamentally strong companies with solid management, low debt, and clear growth prospects.

Diversifying across sectors can help mitigate risks.

Monitoring market trends, policy changes, and global economic conditions is crucial to making informed investment decisions in the broader markets.

Is the current market valuation sustainable? What should be our investment strategy at this juncture?

Historically, we have observed that during periods of higher earnings growth, valuations also tend to expand, a trend recently seen across various market segments.

These factors and sustained retail inflows have driven markets to deliver high returns over the past few years. Moving forward, earnings will be the dominant force driving the markets, as valuation multiples have already expanded and offer limited upside from current levels on a broader scale.

Therefore, investors should approach the market cautiously and with a long-term perspective, focusing on sectors and stocks that offer a reasonable risk-reward balance.

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Disclaimer: The views and recommendations above are those of the expert, not Mint. We advise investors to consult certified experts before making any investment decisions.